Education is important for
the Human Resources Development and empowerment in any country. National and
State level policies are framed to ensure that this basic need of the
population is met through appropriate public and private sector initiatives.
While governments endeavour to provide primary education to all on a universal
basis, higher education is progressively moving into the domain of private
sector. With a gradual reduction in government subsidies higher education is
getting beyond the reach of common man and hence the need for institutional
funding in this area.

The scope of education has widened both in India and abroad covering new
courses in diversified areas. Development of human capital is a national
priority and it should be the duty of all that no deserving student is denied
opportunity to pursue higher education for want of financial support. Loans for
education should be seen as an investment for economic development and
prosperity. Knowledge and information would be the driving force for economic
growth in the coming years.

Based on recommendations made by a Study Group, IBA had prepared a Model
Educational Loan Scheme in the year 2001 which was advised to banks for
implementation by Reserve Bank of India along with certain modifications
suggested by the Government of India. In line with the announcement made by the
Hon'ble Finance Minister in his Budget Speech for the year 2004-05, IBA had
communicated certain changes in the security norms applicable to educational
loans with limits above Rs.4 lakhs and up to Rs. 7.5 lakhs.

There have been enquiries from member banks seeking clarifications on the
various provisions of the scheme based on feedback received from the branches.
With a view to ensure that the scheme is implemented in letter and spirit, it
was decided to review the scheme and make modifications in the scheme to
facilitate smooth operation at bank branches. Towards this, a Working Group of
General Managers drawn from select banks was constituted at IBA. This revised
model scheme has been prepared based on the suggestions made by the Group.

2. OBJECTIVES OF THE SCHEME:

The Educational Loan
Scheme outlined below aims at providing financial support from the banking
system to deserving/ meritorious students for pursuing higher education in
India and abroad. The main emphasis is that every meritorious student though
poor is provided with an opportunity to pursue education with the financial
support from the banking system with affordable terms and conditions. No
deserving student is denied an opportunity to pursue higher education for want
of financial support.

3. APPLICABILITY OF THE
SCHEME:

The scheme detailed below
could be adopted by all Commercial Banks. The scheme provides broad guidelines
to the banks for operationalising the educational loan scheme and the
implementing bank will have the discretion to make changes suiting to the
convenience of the students/ parents to make it more customer friendly.

Computer certificate courses of reputed institutes accredited to Dept. of
Electronics or institutes affiliated to university.

Courses like ICWA, CA, CFA etc.

Courses conducted by IIM, IIT, IISc, XLRI. NIFT etc.

Regular Degree/Diploma
courses like Aeronautical, pilot training, shipping etc., approved by
Director General of Civil Aviation/Shipping, if the course is pursued in
India. In case the course is pursued abroad, the Institute should be
recognized by the competent local aviation/shipping authorit

Courses offered by National
Institutes and other reputed private institutions. Banks may have the system
of appraising other institution courses depending on future prospects/
recognition by user institutions.

Courses, which are not covered under the criteria mentioned above, individual
banks may take a view to consider extending education loan under the scheme
taking into account the future prospects/recognition by user institution.

b. Studies abroad:-

Graduation : For job oriented professional/ technical

courses offered by reputed universities.

Post graduation: MCA, MBA, MS, etc.

Courses conducted by CIMA- London, CPA in USA etc.

4.3 Expenses considered
for loan:

Fee payable to college/ school/
hostel.

Examination/ Library/ Laboratory
fee.

Purchase of books/ equipments/
instruments/ uniforms.

Caution deposit, Building
fund/refundable deposit supported by Institution bills/receipts, subject
to the condition that the amount does not exceed 10% of the total tuition
fees for the entire course.

Travel expenses/ passage money
for studies abroad.

Purchase of computers -
essential for completion of the course.

Insurance premium for student
borrower

Any other expense required to
complete the course - like study tours, project work, thesis, etc.

5. QUANTUM OF FINANCE:

Need based finance
subject to repaying capacity of the parents/ students with margin and the
following ceilings.

Studies in India - Maximum
Rs.10.00 lacs.

Studies abroad - Maximum Rs.20
lacs

6. MARGIN :

Upto Rs 4 lacs

Nil

Above Rs. 4 lacs : Studies
in India

5%

Studies Abroad

15%

- Scholarship/
assistantship to be included in margin.
- Margin may be brought-in on year-to-year basis as and when disbursements are
made on a pro-rata basis.

7. SECURITY :

Upto Rs 4 lacs

Co-obligation of parents.
No security

Above Rs.4 lacs and upto
Rs7.5 lakhs

Co-obligation of parents
together with collateral security in the form of suitable third party
guarantee. The bank may, at its discretion, in exceptional cases, waive third
party guarantee if satisfied with the net-worth / means of parent/s who would
be executing the document as "joint borrower".

Above Rs.7.5 lakhs

Co-obligation of parents
together with tangible collateral security of suitable value, along with the
assignment of future income of the student for payment of installments

Note:-

The loan documents should be
executed by both the student and the parent/ guardian as joint-borrower.

The security can be in the form
of land/ building/ Govt. securities/ Public Sector Bonds/Units of UTI,
NSC, KVP, life policy, gold, shares/mutual fund units/debentures, bank
deposit in the name of student/ parent/ guardian or any other third party
with suitable margin.

Wherever the land/ building is
already mortgaged, the unencumbered portion can be taken as security on
second charge basis provided it covers the required loan amount.

In case the loan is given for
purchase of computer, the computer has to be hypothecated to the Bank.

8. RATE OF INTEREST
:

Upto Rs 4 lacs

BPLR

Above Rs. 4 lacs

BPLR + 1%

Simple interest to be charged during the
Repayment holiday/ Moratorium period.
Penal interest to be charged as applicable to individual banks.

9. APPRAISAL / SANCTION/ DISBURSEMENT :

In the normal course, while appraising the loan the future income prospects of
the student will be looked into. However, where required, the means of parent /
guardian could also be taken into account to evaluate re-payment capability.
The loan to be sanctioned as per delegation of powers preferably by the Branch
nearest to the place of residence of parents.
No application for educational loan received should be rejected without the
concurrence of the next higher authority.
The loan to be disbursed in stages as per the requirement/ demand directly to
the Institutions/ Vendors of books/ equipments/ instruments to the extent
possible.

10. REPAYMENT:

Repayment
holiday/Moratorium

Course period + 1 year or 6
months after getting job, whichever is earlier.

The loan to be repaid in
5-7 years after commencement of repayment. If the student is not able to
complete the course within the scheduled time, extension of time for completion
of course may be permitted for a maximum period of 2 years. If the student is
not able to complete the course for reasons beyond his control, sanctioning
authority may at his discretion consider such extensions as may be deemed
necessary to complete the course.

The accrued interest during the repayment holiday
period to be added to the principal and repayment in Equated Monthly Installments
(EMI) fixed.
1% interest concession may be provided for loanees if the interest is serviced
during the study period when repayment holiday is specified for interest/
repayment under the scheme.

11. INSURANCE

Banks may arrange for
life insurance policy on the students availing Educational Loan. Individual
Banks may work out the modalities with insurance companies

12. FOLLOW UP/TRACKING:

Banks to contact college/
university authorities to send the progress report to the bank at regular
intervals in respect of students who have availed loans. In case of studies
abroad, bank may obtain the Unique Identification Number (UIN)/Identity Card
and note the same in the bank's records.

13. PROCESSING CHARGES

No processing/ upfront
charges may be collected on educational loans for studies in India.

14. CAPABILITY CERTIFICATE:

Banks can also issue the
capability certificate for students going abroad for higher studies. For this
purpose financial and other supporting documents may be obtained from
applicant, if required.

(Some of the foreign universities require the students to submit a certificate
from their bankers about the sponsors' solvency/ financial capability, with a
view to ensure that the sponsors of the students going abroad for higher
studies are capable of meeting the expenses till completion of studies.)

15. OTHER CONDITIONS:

a. Meritorious
Students
Banks which wish to support highly and exceptionally meritorious/ deserving
students without security may delegate such powers to a fairly higher level
authority.
b. Multiple Loans
In case of receipt of application for more than one loan for student borrower
from a family, the 'family' as a unit has to be taken into account for
considering the loan and security taken in relation to the total quantum of
finance disbursed, subject to margin and repaying capacity of the
parent/student.
c. Minimum Age

There is no specific
restriction with regard to the age of the student to be eligible for education
loan.

d. Change of Address

In cases of student
staying with parents and where such parents have transferable jobs or there is
change in address, the bank may provide in the system of noting the ‘address
for correspondence' for tracking purpose.

e. Top up loans

Banks may consider top up
loans to students pursuing further studies within the overall eligibility
limit, with appropriate re-schedulement, subject to taking required security.

f. Co-obligator

The co-obligator should
be parent(s)/guardian of the student borrower. In case of married person,
co-obligator can be either spouse or the parent(s)/parents-in-law.

No Due Certificate

No due certificate need
not be insisted upon as a pre-condition for considering educational loan.
However, banks may obtain a declaration/ an affidavit confirming that no loans
are availed from other banks.

Disposal Application

Loan applications have to
be disposed of within a period of 15 days to 1 month, but not exceeding the
time norms stipulated for disposing of loan applications under priority sector
lending.

Flexibility in terms

In order to bring
flexibility in terms like eligibility, margin, security norms, banks may
consider relaxation in the norms on a case-to-case basis delegating the powers
to a fairly higher level authority.